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Lost Participants – What Employers Need to Know

Eric Droblyen

February 1, 2023


One of the most frustrating issues plan sponsors run into is locating “lost” participants. Whether you’re terminating your plan, or simply trying to eliminate small residual balances from the plan to lower your costs, understanding how to handle lost participants is crucial to the successful administration of your retirement plan. To this end, we’ll answer some of the most common questions plan sponsors have below.

Who is Considered a Lost Participant?

A participant is considered “lost” when they terminate employment, leaves a partially or fully vested account balance in the plan, and then fails to provide either the company or the service provider their current address. 

Lost Participants can be a huge source of frustration– especially if your plan terminates, and you need to pay out benefits to all the participants. Doing this is significantly more difficult if you can’t locate the participants.

What are the Implications and Risks of a Lost Participant?

When an employee is terminated from your company but remains a participant of your retirement plan, you’re still required by law to send plan notifications to these participants. However, if you’re unable to locate them, doing this can be very difficult – which is problematic, as you can be subject to Department of Labor (DOL) penalties for failing to comply with reporting and disclosure requirements.

There is also a cost to maintaining the accounts of lost participants. If your plan allows you to cash out participants below a certain balance, doing so would be prudent to lower your costs. Of course, doing this is incredibly difficult if you can’t locate the participant.

What Steps am I Required to Take to Find a Lost Participant?

As you take each of these steps, be sure to keep any documentation showing you did it:

  1. Call all phone numbers on file related to the participant
  2. Check other plan and employer records for possible alternate addresses/phone numbers, email addresses, etc.
  3. Send a certified letter to the last known address of the participant
  4. Contact known beneficiaries from the participant’s employee file
  5. Perform an online, free search using the known information (e.g., Google)
  6. Use a credit reporting agency
  7. For sizable accounts, use a paid search service – the cost of such service may be charged to the participant’s account

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What Happens if I Can’t Find the Lost Participant?

If you have used all the methods above trying to locate the Lost Participant, you may be able to roll over his or her account into an Individual Retirement Account (IRA).  Before initiating a rollover, double-check your plan to make sure your plan terms provide for this.  

If the account has less than $1,000 and your check is undeliverable because the participant is lost, you will have to periodically (at least semi-annually) attempt to locate the Lost Participant and reissue the check.  A way to avoid this issue is to amend your plan to allow you to follow the automatic rollover provisions for accounts with $1,000 or less. 

If the account is valued at more than $5,000, you cannot force the rollover of the funds into an IRA. You will have to continue to maintain the account for the participant’s benefit and attempt to contact the participant. Be sure to keep a detailed report of these attempts.

How Can I Prevent the Plan from Having Lost Participants?

A few tips to help prevent this issue from occurring:

  1. Keep plan files up to date with addresses in the same manner as you maintain personnel files while the employees work for the company.
  2. Provide exiting employees with a distribution form during their exit interview, including clear instructions that the employees are required to notify the company of all address changes.  Follow-up two weeks after exit interviews for the distribution form.
  3. Periodically update mailing addresses for all employees and collect updated beneficiary designation forms.
  4. Check to see if your plan document has an automatic rollover provision.  If it does, check if the threshold is for $1,000 or $5,000 and if there’s a timing standard in the provision.  If your plan permits or requires automatic rollovers, make sure you are following the terms of this provision in practice.  You should conduct these compliance reviews on at least a semi-annual basis.